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Home Business Business News

Rbm admits pressure On kwacha, forex

by Grace Phiri
29/09/2020
in Business News
3 min read
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The Reserve Bank of Malawi (RBM) has admitted that the kwacha has been under mounting pressure since July, but expressed confidence that the situation will normalise ‘soon’.

In an interview on Friday in Blantyre on the sidelines of an Export Development Fund mini-business forum, RBM Governor Wilson Banda said to address foreign exchange (forex) shortages, which has resulted in the kwacha losing value, the central bank is talking to multilateral institutions for forex help.

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He said: “This year, we have a unique situation. Covid-19 has affected businesses across the globe. The amount of forex generated from tobacco is a lot lower than was the situation last year, tea and sugar is the same story.

“What is making matters even worse is that our supply lines and export route are disrupted and is having a direct impact on forex supply.

“Against that, we have growing demand arising from Covid-19-related imports, which has created a mismatch in supply and demand, thereby exerting  pressure on balance of payments and the exchange rate.”

Wilson Banda | The Nation Online

The pressure on the kwacha has reached the extent where the local unit is now being bought at K820 and sold at an average price of K860 to a dollar.

The situation is even more pronounced just two weeks after the country closed the sales of tobacco, the country’s main foreign exchange earner, which raked in about $173.5 million (about K130 billion). The country’s monthly import requirement is at $149 million (about K111 billion), according to the RBM.

On the other hand, RBM figures show that Malawi recorded a balance of payment (BoP) deficit of $139.8 million in the second quarter of 2020 from $112 million in the preceding quarter.

This is compared to a $15.4 million BoP deficit recorded during the second quarter.

Last Wednesday, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) head of membership development and communications Tione Kafumbu feared that the subdued demand for local exports could further weaken the kwacha, a situation that would continue to cause forex shortages as the demand for imports remains constant.

“The shortage of forex also poses a risk to the country’s forecast agricultural output for 2021 as the country needs to import a lot of input material such us fertiliser and chemicals required by the farming community,” he said.

In an interview on Friday, Bankers Association of Malawi president Kwenele Ngwenya said commercial banks are managing under the present circumstances, expressing optimism that the market could stabilise in the next few weeks.

He said the kwacha found itself in the current state due to speculation fuelled by a possible change of government following the elections.

Meanwhile, RBM is engaging multilateral and regional institutions on some forex lines as it works to stabilise the market.

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